(Bloomberg) -- Britain’s Labour government is considering changing course on a planned tax hike on private equity investors after warnings the measure would ultimately cost more than it raised, the Times newspaper reported, citing unidentified people.
The government had planned to increase the tax rate on carried interest — fund managers’ portion of profits on asset sales — according to Labour’s election manifesto. Under the current rules those profits are taxed at the 28% capital gains rate, rather than at the top income tax rate of 45%.
Labour had said the measure would raise £560 million that it planned to spend on hiring mental health workers, legal aid and waiving visa costs for overseas veterans serving in the British military. However, internal analysis by the Treasury forecast the proposal would trigger an exodus of private equity executives, resulting in an annual cost to the exchequer of as much as £350 million ($459 million) after five years, according to the newspaper.
The Treasury did not immediately respond to a request for comment.
Chancellor Rachel Reeves is preparing to unveil her first budget since Labour gained office and has warned of tough choices as the country grapples with a huge debt pile, stretched public services and elevated tax rates. Labour pledged not to increase a number of big revenue-raising taxes, including income tax and VAT, and has instead been exploring a series of tweaks to investment rules to generate more funds.
The plans have triggered a backlash from the private equity industry which has been aggressively lobbying the government. Reeves is reportedly already considering watering down proposed changes to Britain’s so-called non-dom regime after a furious backlash.
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